Britain expects its flagship banking reforms to remain on track after European Union talks next week, a government source said on Friday, despite opposition to its demand for more freedom from Brussels to choose the level of banks’ capital defences. Chancellor George Osborne has said he will see through recommendations from the Independent Commission on Banking (ICB) for banks to be split into retail and investment arms and to hold more loss-absorbing bonds as a defence against crises.

Those rules, where UK institutions would have to hold enough capital to cover a fifth of their assets as a safety net, go beyond international standards and are opposed by some EU nations - and many in the City of London - who fear they could affect the marketplace for savers, investment and lending.

Finance ministers from across the 27-nation bloc will meet in Brussels on Tuesday to vote on a deal for new bank rules - the second attempt to reach agreement.

“We are confident that we will be able to implement the ICB’s recommendations,” a government source told Reuters.

Osborne warned his EU counterparts earlier this month that any watering down of bank capital rules would make him “look like an idiot”.

The row over who has the power over how banks are regulated could further isolate Britain from the European Union mainstream after Prime Minister David Cameron opted out of an EU economic pact aimed at shoring up the crisis-hit euro zone last year.

EU lawmakers are expected to give nations some flexibility on what bank buffers they impose but Britain wants Brussels to have even less of a say - a demand that may not find a sympathetic audience on the continent.

Britain’s Conservative-Liberal Democrat coalition government is expected to push through its own reforms one way or another.

Osborne is under pressure from an unruly faction of his Conservative party who want Britain to pull out of the EU or at least reduce the hold Brussels has over British laws and regulations, especially those that affect the City of London. London’s bankers have been unhappy with the stricter capital rules Osborne wants to impose, warning that the financial services sector - crucial to Britain’s recovery prospects - will suffer as a result unless they are adopted globally.

Some Europeans worry, however, that higher capital ratios will make British banks appear safer and more attractive to depositors than their European competitors.

The Independent/ Bangladesh/ 13th May 2012